Time For Real Budget Reform

San Francisco’s impending $522 million budget deficit may come with a silver lining: It may finally force San Francisco city leaders and the electorate to make the tough decisions needed to turn things around.

Over the past decade, the cost of city government has increased 58 percent, from $4.2 billion to $6.6 billion, while the city has continued to experience huge budget deficits each year. The cause, according to the controller, is that “citywide costs have continued to climb, in large part due to escalating salary and benefit costs related to labor agreement provisions, new mandates and capital funding.” Put another way, the city is paying for salaries, pension plans and mandated spending levels that it simply can’t afford.

Like the state Legislature in Sacramento, San Francisco has tried to triage each year’s budget deficit, delaying important capital projects, bargaining for short-term salary concessions while hoping that the economy improves. These temporary fixes ultimately make the problem worse by passing the buck.

But this dire situation can be reversed if immediate changes are made.

The city’s pension system must be redesigned to ensure that it is able to meet the needs of retirees without bankrupting the city. According to findings of the civil grand jury, the city’s cost from its retiree pension system will triple from $175 million in 2005 to $544 million by 2012. With more than 40 percent of active employees eligible for retirement, this will create a huge cash flow problem and add to future years’ deficits. Abuses to the system, such as “pension spiking,” where employees are allowed to artificially increase their pension before retiring, must be stopped. The grand jury estimated that this practice has cost the city $132 million.

It is also time to evaluate spending voter-approved set-asides that require the city to spend certain amounts on specific programs regardless of the city’s financial standing. Currently, 60 percent of San Francisco’s general fund budget is spent through mandated spending formulas. However, in an economic recession, all mandates, except those established to protect extremely vulnerable populations, should be suspended or reduced.

Pay raises should be limited during deficit years. Just two years ago, city officials voted to give a 25 percent increase to police officers over four years at a cost of $64 million and a 19 percent increase to registered nurses over three years at a cost of $39 million. In order to pay these increases, from 300 to 400 employees, including police officers and nurses, would have to be laid off.

But even if these changes are made, the budget process itself needs to be reformed. Having managed a city department for 10 years, I’ve witnessed firsthand the inefficiencies of the current budgetary process.

San Francisco’s budget process resembles a poker game, where the mayor and supervisors bargain for and against each other’s programs, without knowledge of what cards the other is holding. The rules of the game are constantly changing, and the parties rarely share the information they are relying upon in making budgetary decisions with each other. Witness the three different deficit estimates coming from the mayor’s office during a single week, or the political battle stemming from the supervisors’ recent attempt to override last year’s budget to restore positions. The city’s departments and programs are treated as the ante, with the winnings going to those who are best at playing the game.

San Francisco needs an independent, nonpartisan budget office that is accountable for guarding the city’s long-term fiscal health. This practice, employed by most similarly sized counties in California and across the nation, would require the mayor, the Board of Supervisors and department heads work collaboratively with the budget office to develop a balanced budget from the priorities set by the mayor and board. The office’s proposed budget would be submitted to the mayor and the board for their review and approval.

The budget office would also be responsible for providing policymakers and the public with an objective evaluation of the performance of the city’s departments and programs, and would also advise the mayor and the board on projected salary costs. Armed with this information, the mayor and the board would decide the appropriate funding level for each program or department after receiving public input. This would increase the transparency, accountability and long-term focus of the process.

Of course, these fundamental changes, like the efforts to redesign our nation’s health system, won’t come easy. Changing the city’s budget process requires amending the City Charter and combining the city’s various budget agencies into a single, independent budget office. But the failure to act will mean more mass layoffs, a severe decrease in city services and a bankrupt pension system. Only by enacting real, structural reforms to our fiscal process will we get San Francisco’s city government back on the road to a sound and sustainable economic recovery.

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